Technology insiders nibble at shares

Technology insiders have started acquiring shares, a hint that sentiment is more bullish overall than in the recent past.

January 12, 20024:15 PM PST

Technology insiders have started acquiring shares.

Although this activity can be described as "nibbling" in most cases--we have
yet to see widespread consensus buying in this sector--it hints that
sentiment is more bullish overall than in the recent past.

The technology sector has been especially hard-hit over the last nine months. A Dec. 14 earnings warning by Microsoft
has heightened concerns that a sector rally may not be imminent. In fact,
Wit SoundView analyst Arnie Berman called the announcement a "watershed
event" because of Microsoft's past financial predictability. Microsoft's chief financial officer,
John Connor, notes that weakened global economic conditions are slowing not
just PC sales but also corporate spending for technological goods and
services in general.

This makes purchasing activity at some of the largest technology companies
particularly intriguing.

In the PC space, Apple
Computer has experienced a 70 percent decrease in the price of its
shares since the year began. A late-October purchase of 80,600 Apple shares
by director Arthur Levinson was the first insider addition there in three
years. With a market value of $1.6 million (he bought at prices between
$18.81 and $20.34), Levinson's trade was also the largest addition by an
Apple insider to date, and occurred when the stock was down significantly
from its March high of $75. Apple shares subsequently slid to a 52-week low
of $14 on Dec. 6.

In the domestic long-distance market, WorldCom
is the nation's No. 2 player. Shares currently trade at about $17, down
approximately 65 percent since the end of 1999. The stock actually hit a
three-year low of $14.25 Dec. 5.

Director Francesco Galesi picked up 127,650 WorldCom shares between Nov.
3-17 at prices ranging from $15.88 to $18.13. This primarily direct
transaction was the first insider purchase here since March 1999. Galesi has
been successful in predicting an upswing in the value of WorldCom shares
with his previous five additions--in the six months following those trades,
the stock bounced back by an average 57.8 percent.

Motorola,
the world's No. 2 mobile phone manufacturer, had two insiders buying a
combined 7,250 shares in mid-October at prices between $20.38 and $22.50.
Directors Judy Lewent and Ronnie Chan increased their holdings by 5,000 and
2,250 shares, respectively. These were the first executive purchases at
Motorola in six months, and the first consensus buying here in more than two
years. At the time of these trades, shares had declined 65 percent from an
all-time high of $61.54 in March. The stock is currently down about 60
percent for the year, after rebounding from a two-year low at the $15-level
set on Dec. 7.

Lam
Research is a semiconductor equipment maker whose products are used by
many major computer chipmakers. Its stock has shed 60 percent of its value
this year. Director Grant Inman picked up 10,000 shares Oct. 18 at $16.68.
Inman himself had made the most recent prior addition at the company two
years earlier. Lam Research shares set a 52-week low at the $13-level when
the most recent buying occurred, after trading as high as $56.81 in April.
At its current price of about $14, the stock is down even further since this
insider traded.

At Adaptec,
a maker of computer-networking devices, its chief operating officer, Robert
Schultz Jr., picked up 4,750 shares Oct. 30 at prices between $14.56 and
$14.63. (Chief financial officer David Young subsequently picked up 600
shares in November at prices in the $13 to $15 range.) Adaptec executives
had previously not increased their holdings on the open market in more than
a year. In fact, Schultz himself made the most recent prior purchase in
September 1999. His most recent transaction, worth $69,400, is the largest
addition by an Adaptec executive in over two years. At their current price
of about $9, a two-year low, Adaptec shares are down 80 percent
year-to-date.

The recent buying may be a prelude to a recovery in the coming months as
insiders often purchase shares when they believe the market is undervaluing
their company's shares. However, with many tech stock prices down so
significantly, I would like to see a greater number of executives stepping
forward to increase their holdings at what appears to be potentially bargain
prices.